A new analysis from the U.S. Department of Treasury’s Office of Economic Policy (OEP) has found that American businesses are doing well because they are productively investing their earnings.
The analysis, which came just before Treasury Secretary Janet Yellen spoke to the Economic Club of New York, found that while American businesses have higher earnings, policies within President Joe Biden’s administration have created favorable conditions for business investment in a post-COVID economy. The CHIPS & Science Act and the Inflation Reduction Act both encourage private investment, the office said, while other efforts have worked to increase competition and reduce barriers to entry for new firms.
According to the OEP analysis, American business investment is outperforming expectations, and businesses have invested more than $430 billion more since 2019 than if investments had followed historic patterns. The analysis also found that factory building has contributed nearly a third of the business investment growth since the pandemic. Since 2021, factory building has contributed a third of overall business investment growth, despite not contributing to business investment growth on average from 1973 to 2021.
The OEP said the outlook for future business investment growth is encouraging and firms are observing high returns to their capital. The analysis found that high rates of returns on capital are giving businesses confidence in their investments. Business founders are showing confidence in the investment outlook, the OEP found, and new business applications are surging beyond levels seen before the COVID-19 pandemic.